Dominick Reuter/Business Insider
The frenzy around Costco's selling of precious metals is creating a kind of arbitrage opportunity for some gold enthusiasts — though it's not without the risks that come with short-term trading and skirting the company's rules.
The wholesale club last year revealed that it was selling through its supplies of gold bars "within hours," and more recent estimates put the monthly sales of gold and silver as high as $200 million.
What makes Costco different from typical gold retailers is that the the listing prices are often very close to the commodity market spot price, which means the purchases preserve more of their value early on.
The real kicker, however, is the company's 2% rewards offer for Executive members, plus an another 2% reward for holders of the Costco credit card.
That can mean an effective 4% discount to the spot price after all is said and done. And some cards from other institutions offer even higher incentives.
One Costco member told Business Insider says he uses these percentage-point differences to make up to $500 per week buying coins and flipping them to online dealers and to local shops.
This side hustle emerged somewhat unexpectedly last July when he was browsing the Costco app and saw a listing for gold bars.
"I kind of debated on it and slept on it overnight, and by the time I woke up, it was gone," he said. BI reviewed the person's orders in their Costco app, as well as his credit card transactions, but is not revealing his identity due to privacy and security concerns.
Soon after, he began buying as much as Costco would allow, prioritizing the coins from the US and Canadian Mints over the bars from Swiss or South African refineries.
"For me, gold is gold," he said, "but there's always more demand for Mint."
Driving through Texas one day he stopped into a Costco warehouse that happened to have US gold buffalo coins in stock.
"I ended up buying four of those right there," he said, showing a receipt for more than $9,000. "I would do that each and every day if my local Costco had buffaloes, but they only get Pamps every time and the resale on those is very bad."
In just the past six months, the member has bought more than $110,000 worth of gold, according to credit card transactions reviewed with BI.
"I'm still full-time in IT — this is a side hustle that I spend about half an hour to an hour a week on," he said. "I end up making about anywhere from $300 to $500."
Achieving these returns requires the use of multiple memberships, which technically skirts a few company policies and could lead to an account being revoked. And there's also the critical caveat that short-term trading is a highly risky activity that entails the potential for significant financial losses.
The current maximum Executive reward value is $1,000, meaning resale profits drop considerably after reaching $50,000 in purchases in a year, or about 20 ounces of gold at current prices. Plus, Costco only allows for one Executive membership per household or business.
The person BI spoke with has already maxed out rewards on two Executive memberships this year, and the promotional 6% reward period on his non-Costco credit card is set to end next month.
While Costco wouldn't likely endorse what this member is doing, it's not exactly cracking down, either. The company's limit on precious metal units per transaction was originally two, now it's five, and the rewards cap will step up to $1,250 when the membership fee hike takes effect in September.
That said, the member says he's not worried if things come to a halt. For him, this has been an opportunity to experiment and make a little extra cash for travel and entertainment.
When asked why he doesn't just use his cash to buy shares of Costco stock, which has significantly outperformed gold as an investment, his answer was simple: "I do invest in stocks, but I like gold — that's all I can say."
